DCIT 17(1), MUMBAI vs. SHM SHIPCARE, MUMBAI

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य राजे�� राजे�� केकेकेके अनुसार अनुसार PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 21.11.2012 of the CIT-34, the Assessing Officer (AO) has filed the present appeal.Assessee-firm, engaged in the business of supply and service of fire fighting and life saving equipments on board ships filed its return of income,on 29.9.2008,declaring total income at Rs.3.28 crores. The AO completed the assessment on 28.12.2010, u/s. 143(3) of the Act,determining the income of the assessee at Rs.3,67,69,030/-. 2.Effective Ground of appeal is about deleting the additions of Rs.37.84 lacs.During the assessment proceedings,the AO found that the assessee had made payments to non-residents under the heads training fee(Rs.20.68 lacs),service fee (Rs.12.04 lacs and royalty payment (Rs.5.11 lacs),that it had not deducted tax at source while making the above mentioned payments. He held that the assessee was hit by the provisions of section 40(a)(ia) of the Act.He asked the assessee to explain as to why the expenditure claimed by it should not be disallowed. After considering the reply of the assessee, the AO held that the assessee had paid training fee, survey charges and royalty to non-residents for services to be utilised for its business, that as per section 9(1)(i), 9(1)(vii) and 9(1)(vi) the income would deem to or accrue in India, that the payments made by the assessee attracted provisions of chapter XVII-B of the Act.Finally, he disallowed a sum of Rs.37,84,750/- and added it to the total income of the assessee. 3.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA). After considering the submission of the assessee and the assessment order the FAA held that the non-resident entities had no business presence in India for earning their service charges, that the assessee would provide services to marine vessels and not on behalf of the non-residents, that the transaction of providing service fee was on a principal to principal basis between the assessee and the non residents, that the non-residents were doing business with India from outside India, that they were not carrying out any business operation in India, that service charges were received from them for getting business, that the assessee provided services

ITA/1047/M/13,AY.08-09-SHM Shipcare to suppliers of different countries, that it was getting references for inspection and servicing of equipments,that for getting reference it had to pay a fixed sum to the equipment manufacturers/ suppliers, that the reference was supplied by the supplier to the assessee outside India, that the income to the supplier arose outside India and was not taxable as per provisions of the Act, that the income received by the non residents was not taxable in India in view of clause(a) to Explanation 1 of Section 9(1)(i), that the equipment manufacturers had no business operation with India, that no income had accrued or arisen in India to the non-residents, that the service charges received by the assessee would not amount to transfer of any right in respect of any patent, invention etc., that the suppliers by giving reference were not imparting any information which was in nature of technical/industrial/commercial/scientific knowledge, experience or skill., that they were also not rendering any services in connection with the activities referred in the sub clauses of Explanation 2 to section 9(1)(vi).He referred to the case of Cushman and Wakefield (S) Pte.Ltd.(305 ITR 208) and Sheraton International Inc.(313ITR267), that the assessee was not obliged to deduct TDS on service charges.Finally,he deleted the addition made toward service charges.With regard to training fee,the FAA held that personnel of the assessee were trained by the suppliers of the equipments,that the staff members were sent abroad for training, that the raining fee included cost of conveyance,certification cost as well as the actual training cost, that accommodation and conveyance were reimbursement of the expenses by the assessee,that the provisions of TDS were not applicable to such payments,that the training fee paid to the non- residents was not covered by the provisions of section 9,that the training fee was also not covered by the word “royalty” as envisaged by the section 9(1)(vii).

4.Before us,the Departmental Representative (DR)contended that payment made for training was fee for technical services by nature,that the royalty payment is also covered by provisions of section 9, that the amendment to section 9 was retrospective in effect.As stated earlier,none was present on behalf of the assessee.

5.We have heard the DR and perused the material before us. We find that the assessee is engaged in sales and services of safety equipments installed on board marine vessels, that it would get business from the equipment manufacturers, that after completing the servicing of safety equipments it would issues a certificate to the vessels operating in International waters, that it would purchase blank certificates from equipment manufacturers,that it also undertook servicing of life boats and its lunching appliances,that to carry out the servicing of such equipments service personnel would be sent outside India for training, that the training fee included accommodation and conveyance, that both these payments were reimbursement of actual expenditure, that no TDS is required to be deducted for such payments.We find that the FAA has given a categorical finding of fact that none of the payments in question are covered by the provisions of section 9, that the non residents had no PE in India, that the assessee was not liable to deduct tax at source for these payments.We are of the opinion that his order does not suffer from any legal infirmity.Here ,we would also like to mention that the issue of taxability of these three payments had arisen because of the retrospective amendment to section.The assessee had managed its affairs as per the provisions of existing law and at the time of filing of return,it had not to deduct the tax. The settled principle of jurisprudence stipulates that impossible acts cannot be expected to be performed by an assessee.In the case of IDBI Capital Market Services Ltd.(ITA No. 1404/ Mum/2013-dtd.08.05.2015)the Tribunal has,in almost similar circumstances,held that if at the 2

ITA/1047/M/13,AY.08-09-SHM Shipcare time of filing of its return the assessee is not required to deducted tax as per the existing provisions and later on because of the retrospective amendment or judgment of a court liability to deduct Tax at Source arises,the assessee cannot be held responsible for not deducting of tax at the time of filing of return. Considering the above discussion,we confirm the order of the FAA and decide the effective ground of appeal against the AO.